A product is defined as: "Anything that is capable of satisfying customer needs." This definition includes both physical products (e.g. cars, washing machines, DVD players) as well as services (e.g. insurance, banking, private health care). The process by which companies distinguish their product offerings from the competition is called branding.
Best Practices for Product Development - Guy Kawasaki
For most companies, brands are not developed in isolation - they are part of a product group. A product group (or product line) is a group of brands that are closely related in terms of their functions and the benefits they provide (e.g. Dell's range of personal computers or Sony's range of televisions).
There are two main types of product brand: (1) Manufacturer brands, (2) Own-label brands. Manufacturer brands are created by producers and use their chosen brand name. The producer has the responsibility for marketing the brand, by building distribution and gaining customer brand loyalty. Good examples include Microsoft, Panasonic and Mercedes. Own-label brands are created and owned by distributors. Good examples include Tesco and Sainsbury's. The main importance of branding is that, done well, it permits a business to differentiate its products, adding extra value for consumers who value the brand, and improving profitability for the company.
Businesses should manage their products carefully over time to ensure that they deliver products that continue to meet customer wants. The process of managing groups of brands and product lines is called portfolio planning. Businesses need to regularly look for new products and markets for future growth. A useful way of looking at growth opportunities is the Ansoff Growth matrix which suggests that there are four main ways in which growth can be achieved through a product strategy:
(1) Market penetration - Increase sales of an existing product in an existing market
(2) Product development - Improve present products and/or develop new products for the current market
(3) Market development - Sell existing products into new markets (e.g. developing export sales)
(4) Diversification - Develop new products for new markets
Product Life Cycle
The product life cycle is an important concept in marketing. It describes the stages a product goes through from when it was first thought of until it finally is removed from the market. Not all products reach this final stage. Some continue to grow and others rise and fall.
The main stages of the product life cycle are:
Introduction – researching, developing and then launching the product Growth – when sales are increasing at their fastest rate Maturity – sales are near their highest, but the rate of growth is slowing down, e.g. new competitors in market or saturation Decline – final stage of the cycle, when sales begin to fall
This can be illustrated by looking at the sales during the time period of the product. Product Life Cycle
A branded good can enjoy continuous growth, such as Microsoft, because the product is being constantly improved and advertised, and maintains a strong brand loyalty. Some key features of each stage in the product life cycle can be summarized as follows:
First Stage: Introduction
•New product launched on the market
•Low level of sales
•Low capacity utilization
•High unit costs - teething problems occur
•Usually negative cash flow
•Distributors may be reluctant to take an unproven product
•Heavy promotion to make consumers aware of the product Relevant strategies at the introduction stage might include:
•Aim – to encourage customer adoption
•High promotional spending to create awareness and inform people
•Either skimming or penetration pricing
•Limited, focused distribution
•Demand initially from “early adopters”
Second Stage: Growth
•Expanding market but arrival of competitors
•Fast growing sales
•Rise in capacity utilization
•Product gains market acceptance
•Cash flow may become positive
•Unit costs fall with economies of scale
•The market grows, profits rise but attracts the entry of new competitors Relevant strategies at the growth stage might include:
•Advertising to promote brand awareness
•Increase in distribution outlets - intensive distribution
•Go for market penetration and (if possible) price leadership
•Target the early majority of potential buyers
•Continuing high promotional spending
•Improve the product - new features, improved styling, more options
Third Stage: Maturity
•Slower sales growth as rivals enter the market = intense competition + fight for market share
•High level of capacity utilization
•High profits for those with high market share
•Cash flow should be strongly positive
•Weaker competitors start to leave the market
•Prices and profits fall There is a wide variety of possible options for a product that has reached the maturity stage:
•Product differentiation & product improvements
•Rationalization of capacity
•Competitor based pricing
•Promotion focuses on differentiation
•Persuasive advertising
•Intensive distribution
•Enter new segments
•Attract new users
•Re-positioning
•Develop new uses
Fourth Stage: Decline
Common features at this stage include:
•Falling sales
•Market saturation and/or competition
•Decline in profits & weaker cash flows
•More competitors leave the market
•Decline in capacity utilization –switch capacity to alternative products Potential strategies are:
•Harvest by spending little on marketing the product
•Rationalize by weeding out product variations
•Price cutting to maintain competitiveness
•Promotion to retain loyal customers
•Distribution narrowed
Extension Strategies
These extend the life of the product before it goes into decline. Again businesses use marketing techniques to improve sales. Examples of the techniques are:
Advertising – try to gain a new audience or remind the current audience
Price reduction – more attractive to customers
Adding value – add new features to the current product, e.g. video messaging on mobile phones
Explore new markets – try selling abroad
New packaging – brightening up old packaging, or subtle changes such as putting crisps in foil packets or Seventies music compilations
Some Criticisms of the Product Life Cycle
•The shape and duration of the cycle varies
•Strategic decisions can change the life cycle
•It is difficult to recognize exactly where a product is in its life cycle
•Length cannot be reliably predicted
•Decline is not inevitable?
•Assumes no reversion to earlier consumer preferences
•It can become a self fulfilling prophecy
It's All About that Product...
A product is defined as: "Anything that is capable of satisfying customer needs." This definition includes both physical products (e.g. cars, washing machines, DVD players) as well as services (e.g. insurance, banking, private health care). The process by which companies distinguish their product offerings from the competition is called branding.
Best Practices for Product Development - Guy Kawasaki
For most companies, brands are not developed in isolation - they are part of a product group. A product group (or product line) is a group of brands that are closely related in terms of their functions and the benefits they provide (e.g. Dell's range of personal computers or Sony's range of televisions).
There are two main types of product brand: (1) Manufacturer brands, (2) Own-label brands. Manufacturer brands are created by producers and use their chosen brand name. The producer has the responsibility for marketing the brand, by building distribution and gaining customer brand loyalty. Good examples include Microsoft, Panasonic and Mercedes. Own-label brands are created and owned by distributors. Good examples include Tesco and Sainsbury's. The main importance of branding is that, done well, it permits a business to differentiate its products, adding extra value for consumers who value the brand, and improving profitability for the company.
Businesses should manage their products carefully over time to ensure that they deliver products that continue to meet customer wants. The process of managing groups of brands and product lines is called portfolio planning. Businesses need to regularly look for new products and markets for future growth. A useful way of looking at growth opportunities is the Ansoff Growth matrix which suggests that there are four main ways in which growth can be achieved through a product strategy:
(1) Market penetration - Increase sales of an existing product in an existing market
(2) Product development - Improve present products and/or develop new products for the current market
(3) Market development - Sell existing products into new markets (e.g. developing export sales)
(4) Diversification - Develop new products for new markets
Product Life Cycle
The product life cycle is an important concept in marketing. It describes the stages a product goes through from when it was first thought of until it finally is removed from the market. Not all products reach this final stage. Some continue to grow and others rise and fall.The main stages of the product life cycle are:
Introduction – researching, developing and then launching the product
Growth – when sales are increasing at their fastest rate
Maturity – sales are near their highest, but the rate of growth is slowing down, e.g. new competitors in market or saturation
Decline – final stage of the cycle, when sales begin to fall
This can be illustrated by looking at the sales during the time period of the product. Product Life Cycle
A branded good can enjoy continuous growth, such as Microsoft, because the product is being constantly improved and advertised, and maintains a strong brand loyalty. Some key features of each stage in the product life cycle can be summarized as follows:
First Stage: Introduction
•New product launched on the market
•Low level of sales
•Low capacity utilization
•High unit costs - teething problems occur
•Usually negative cash flow
•Distributors may be reluctant to take an unproven product
•Heavy promotion to make consumers aware of the product
Relevant strategies at the introduction stage might include:
•Aim – to encourage customer adoption
•High promotional spending to create awareness and inform people
•Either skimming or penetration pricing
•Limited, focused distribution
•Demand initially from “early adopters”
Second Stage: Growth
•Expanding market but arrival of competitors
•Fast growing sales
•Rise in capacity utilization
•Product gains market acceptance
•Cash flow may become positive
•Unit costs fall with economies of scale
•The market grows, profits rise but attracts the entry of new competitors
Relevant strategies at the growth stage might include:
•Advertising to promote brand awareness
•Increase in distribution outlets - intensive distribution
•Go for market penetration and (if possible) price leadership
•Target the early majority of potential buyers
•Continuing high promotional spending
•Improve the product - new features, improved styling, more options
Third Stage: Maturity
•Slower sales growth as rivals enter the market = intense competition + fight for market share
•High level of capacity utilization
•High profits for those with high market share
•Cash flow should be strongly positive
•Weaker competitors start to leave the market
•Prices and profits fall
There is a wide variety of possible options for a product that has reached the maturity stage:
•Product differentiation & product improvements
•Rationalization of capacity
•Competitor based pricing
•Promotion focuses on differentiation
•Persuasive advertising
•Intensive distribution
•Enter new segments
•Attract new users
•Re-positioning
•Develop new uses
Fourth Stage: Decline
Common features at this stage include:
•Falling sales
•Market saturation and/or competition
•Decline in profits & weaker cash flows
•More competitors leave the market
•Decline in capacity utilization –switch capacity to alternative products
Potential strategies are:
•Harvest by spending little on marketing the product
•Rationalize by weeding out product variations
•Price cutting to maintain competitiveness
•Promotion to retain loyal customers
•Distribution narrowed
Extension Strategies
These extend the life of the product before it goes into decline. Again businesses use marketing techniques to improve sales. Examples of the techniques are:
Advertising – try to gain a new audience or remind the current audience
Price reduction – more attractive to customers
Adding value – add new features to the current product, e.g. video messaging on mobile phones
Explore new markets – try selling abroad
New packaging – brightening up old packaging, or subtle changes such as putting crisps in foil packets or Seventies music compilations
Some Criticisms of the Product Life Cycle
•The shape and duration of the cycle varies
•Strategic decisions can change the life cycle
•It is difficult to recognize exactly where a product is in its life cycle
•Length cannot be reliably predicted
•Decline is not inevitable?
•Assumes no reversion to earlier consumer preferences
•It can become a self fulfilling prophecy